CI Market Cashboard: Neutral Sentiment in Command

Weekly Market Summary

The U.S. investors and traders started the week encouraged by the victory of centrist candidate Emmanuel Macron in the French presidential election and liberal candidate Moon Jae-in emerged victorious in South Korea’s presidential election. As it turned out, however, it appears that the results had already been priced into the market. Instead, a series of disappointing quarterly announcements and economic data along with unexpected political developments in Washington, D.C., sent U.S. stocks generally lower by the end of the week.

On Monday, investors digested comments from several regional Federal Reserve presidents this week. On Monday, Cleveland Fed president Loretta Mester warned of a possible recession, should the Fed “delay too long in taking the next normalization step.” St. Louis Fed president James Bullard countered with “The policy rate is approximately at an appropriate setting.” On Tuesday, Kansas City Fed president Esther George said the Fed should continue to gradually increase interest rates, while Boston Fed president Eric Rosengren warned against major changes to Fannie Mae and Freddie Mac.

On Tuesday night, President Trump surprisingly said to FBI Director James Comey “You’re Fired!”, setting off the latest political firestorm of the Trump administration. With politicians on both sides of the aisle calling for an investigation, the President’s ability to pass his legislative agenda has become increasingly uncertain.

This was not a good week for retail stocks after Macy’s (M) announced a major earnings miss. Dillard’s (DDS) also missed its consensus target and saw its shares tumble. Although Kohl’s (KSS) announced a positive earnings surprise, it missed its revenue target, which sent its shares lower, too. J.C Penney (JCP) shares hit their lowest mark in their 36-year trading history, according to Schaeffer’s Investment research following their announcement that quarterly sales fell short of forecasts. On the bright side, on Friday, the Commerce Department reported that sales at U.S. retailers rose in April, and March sales were stronger than originally estimated. Retail sales increased 0.4% from March to April and were 4.5% higher compared to a year ago. A 0.2% monthly decline for March was revised up to show a 0.1% increase. However, the April increase did come in below more estimates.

The Dow Jones Industrial Average (DJIA) ended the week on a four-day losing streak, ultimately shedding 0.53% this week to close at 20,896.61. The blue-chip index wasn’t able to hold the high ground above 21,000 and we are starting to wonder if that is becoming a psychological resistance point. To the downside, the 20,800 level may offer support, as this would fill in the gap created in late April. Below that is the 50-day moving average at 20,786.96.

The S&P 500 Index (SPX) dropped 0.35% this week to close at 2,390.90. The large-cap index hit a new all-time high on Monday but wasn’t able to maintain the momentum. The 2,400 level still appears to be a near-term resistance point. To the downside, there may be support around 2,375, which would be the point that the late-April price gap would be filled in. There is also the 50-day moving average at 2,368.47.

This week, only two of the 10 S&P Sector SPDRs posted gains. Energy (XLE) enjoyed a rare weekly win as data showed a big drop in U.S. crude inventories. For the week, the ETF added 0.65%. Technology (XLK) shares continued their winning streak, climbing 1.1%. Utilities (XLU) ended the week unchanged. Materials (XLB) was the weakest sector this week, losing 1.6%.

The broad market Wilshire 5000 (W5000) lost 0.5% this week to close at 24,855.89. It still appears that the 25,000 mark will offer near-term resistance. If the index were to fill in the price gap from late April, it would fall to around 24,650. This is also near the 50-day moving average, which is currently at 24,660.22.

The tech-heavy Nasdaq Composite (COMP) bucked the trend of the other major indexes, posting a 0.34% gain this week to 6,121.23. The index notched a new all-time high close on Wednesday, its third of the week. To the downside, we look for round-number support at the 6,000 mark. Below that is the 50-day moving average at 5,929.71.

The Russell 2000 (RUT) index of smaller stocks fell 1.02% this week to 1,382.77. The index is flirting with support around the 1,380 level. Just below that is the 50-day moving average at 1,377.87.

The CBOE Volatility Index (VIX) ticked downward by 1.6% this week to 10.40. On Monday, Wall Street’s “fear gauge” closed at 9.77, its lowest level since December 1993. In addition, this was the first time in over 10 years the VIX closed below 10 and was only the 11th time it closed below 10 since the index was launched in 1993.

Computerized Investing Market Dashboard Indicators

This week, two of the CI Market Dashboard Indicators triggered new neutral signals, both switching from bullish. However, none of the Dashboard indicators triggered confirming bearish or bullish signals this week.

The Market Dashboard is one of the many benefits of Computerized Investing, a service from AAII that harnesses the power of technology to help individual investors become more effective managers of their own portfolios. To learn more about Computerized Investing, visit http://www.aaii.com/computerized-investing/about

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Wayne A. Thorp, CFA, is the senior financial analyst and a vice president at AAII. He has written extensively on the topics of technical analysis, quantitative stock selection, stock valuation and analysis, and technology. He is the program manager for Stock Investor Pro, AAII's fundamental stock screening and research database programs. Wayne is also the lead analyst and product manager for AAII's Stock Superstars newsletter and serves on the investment committee of the Dividend Investing newsletter. He has worked at AAII since 1997.